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Evaluation of single and three factor CAPM based on Monte Carlo Simulation

by Iordanova, Tzveta

Abstract (Summary)
The aim of this master thesis was to examine whether the noticed effect of Black Monday October 1987 on stock market volatility has also influenced the predictive power of the single factor CAPM and the Fama French three factor CAPM, in order to conclude whether the models are less effective after the stock market crash. I have used an OLS regression analysis and a Monte Carlo Simulation technique. I have applied these techniques on 12 industry portfolios with US data to draw a conclusion whether the predictability of the single and three factor model has changed after October 1987. My research confirms that the single factor CAPM performs better before October 1987 and also found evidences that support the same hypothesis of Black Monday effect on the predictive power of the Fama French three factor model.
Bibliographical Information:

Advisor:

School:Högskolan i Skövde

School Location:Sweden

Source Type:Master's Thesis

Keywords:single factor capm fama french ols regression monte carlo simulation

ISBN:

Date of Publication:06/21/2007

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